SEGA-AM2 (a new subsidiary of Sega Corp., and Sonic Team Ltd) will be developing its hit title "Shenmue(TM) II," the popular game series and current Sega Dreamcast bestseller that goes beyond the boundaries of existing games with an exciting story line. "Shenmue II" is the sequel to "Shenmue(TM)," which sold a record 1.2 million copies worldwide. Since its release on Sept. 6, "Shenmue II" has attracted attention due to its vast world and photo-realistic imagery never before depicted in video games. In the development of "Shenmue II," the full potential of Xbox has been utilized to convey the game's magnificence.

Sonic Team will be developing the networked RPG game "Phantasy Star(TM) Online (working title)" for Xbox. This game has amassed more than 300,000 registrants since its launch and has garnered several awards, including the Fifth Annual Japan Game Award. "Phantasy Star Online (working title)" is the first consumer networked RPG game that is compatible worldwide. Some of the innovative elements in Phantasy Star Online include a word select system that allows players to communicate with other players worldwide and a visual lobby that expands the breadth of communications by adding graphic elements to text-based chat, a current standard of network games. "Phantasy Star Online (working title)" for Xbox will provide content that will be a major factor in Microsoft's broadband network strategy.

"By bringing 'Shenmue II' and 'Phantasy Star Online (working title)' to Xbox, we are bringing Sega's renowned franchises to even more gamers worldwide," said Peter Moore, president and COO, Sega of America. "We expect that both titles will be killer apps on Xbox and that the technical capabilities of the platform will surely bring both games to new levels in terms of graphics and experience."